McCloskey’s Plea for an Unethical Ethical Response to Corporate Bribery

By William K. Black
Quito: March 4, 2015

Deirdre McCloskey has provided another proof of our family saying that it is impossible to compete with unintentional self-parody. She did so in the guise of a review in the Wall Street Journal of two books on corruption. McCloskey’s thesis is that only ethics, not institutions, matter when it comes to stopping corruption.

“All that works in the end is ethical change, urged from the mother’s knee, the pastor’s pulpit, the judge’s bench, the schoolmaster’s lectern. It is fruitless to propose ‘mechanisms’ or ‘institutions’ absent an ethical desire in enough of us to do good.

We need sermons, which is to say instruction from our mothers and movies and imams about How to Be Good. Sarah Chayes and Jay Cost provide ample texts for the sermons. Indignation on the ground, if pervasive, stops corruption. The books give us cause for indignation, surely. But the rest is up to us, or our mothers teaching us at their knees.”

McCloskey proposes that we create “pervasive” “indignation” demanding an end to “corruption.” She suggests that the key is the consistency of that ethical message to “do good.” We need “sermons” from clergy, mothers, teachers, judges (during sentencing), and the media and movies that reinforce the message that the public must achieve a “pervasive” loathing of corruption and a commitment to “stop” it.

McCloskey’s book review contains a “sermon” presenting her ethical views on corruption. The title of her article captures the moral of her sermon: “Two Cheers for Corruption.” McCloskey urges us to embrace many forms of corruption because she asserts that they add to economic efficiency and justice.

“But corruption can be efficient and just, too. It can be good for efficiency if, say, bribes are paid to get around bad laws (such as most of the building codes in American cities) or to smooth the course of sales by U.S. businesses to the Egyptian military. And the turkey at Christmas supplied by Tammany Hall justly helped the poor—if they voted right.”

Note that the two modern forms of corruption that she praises involve corporate bribery, extortion, and fraud. McCloskey is known for her list of people who she feels are or were sufficiently pure in their visceral hatred of democratically elected government to be her intellectual heroes. Frédéric Bastiat makes her list. Bastiat’s most famous warning is a perfect description of McCloskey’s sermon in favor of corporate bribery, extortion, and fraud.

“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.”

“Plunder” has “become a way of life” for our most elite financial CEOs. Even our most anti-regulatory regulators now concede that these CEOs have crafted a pervasively corrupt culture in “their” banks that constantly seeks to corrupt government and other professionals by generating a “Gresham’s” dynamic in which bad ethics drives good ethics from the marketplace (Akerlof 1970; Swift 1726). Many of the men on McCloskey’s list of her intellectual heroes helped, and continue to help today, financial elites achieve “a legal system that authorizes” “plunder.” They created and cheered the perverse incentives and the three “de’s” (deregulation, desupervision, and de facto decriminalization) that created the criminogenic environments that produce pervasive “control fraud” (“plunder”) and the Gresham’s dynamic. McCloskey’s article seeks to create an immoral “moral code that glorifies” “plunder.” The huge corrupt thieves in America are not government officials, they are CEOs that run our control frauds and who seek to corrupt the private, NGO, and governmental sectors to aid their frauds and ability to “plunder” with impunity.

Instead of teaching “sermons” from her “lectern” about the need to develop and maintain a “pervasive” “indignation” against corruption, McCloskey urges us to consider CEOs who commit felonies our heroes because their bribes, acts of extortion, and acts of fraud against us produce a more “just” and “efficient” world. The logical and moral inconsistencies of her short article are glaring, but she does not even try to reconcile the contradictions.

In my next column in this series I respond to McCloskey’s ode to the use by corporate officials of bribery, fraud, and extortion to (1) secretly evade building codes that the builder personally thinks are “bad” and then (2) to deceive those who purchase, rent, or visit those buildings. The third column will discuss her blanket endorsement of procurement fraud and corruption as a means to “smooth” U.S. firms winning (via bribes and extortion) the ability to sell the “Egyptian military” more main battle tanks at highly inflated prices.

I am discussing procurement fraud here in Quito this Friday with the government unit that seeks to prevent such fraud and corruption. Sadly, they are so unsophisticated ethically that they fail to see that the ability of American businesses to bribe and extort Ecuadorian officials with impunity under U.S. laws to induce them to buy goods that Ecuador does not need at grossly inflated prices would make the world more “just” and improve “efficiency.” They are eager to help create and sustain the kind of “pervasive” “indignation” against corruption that (in combination with systems and incentives) can “stop” “corruption.”

The ethical McCloskey that wrote the concluding paragraphs to her article would love the Ecuadorian procurement officials. The anti-ethical McCloskey that wrote the ode to bribery, extortion, and fraud earlier in the same article despises them. In physics, when the McCloskey ethical particle met the anti-ethical McCloskey particle they would both cease to exist.

Let Your Life Speak

Oh, and “mothers” aren’t the only ones who teach and model ethical behavior for their children. Many things we do as parents have an ethical component. This insight is among the many that the Society of Friends has long gotten correct. Their maxim is “Let your life speak.” That is typically more effective than delivering a “sermon” on ethics to one’s children. Our lives constitute “revealed ethics,” and economists have long rightly focused more on what people do than what people say they would do. Parents need to walk the walk, not merely talk the talk.

We do not simply judge and give “sermons” on our kid’s ethics. Our kids judge our ethics by the lives we live and by their personal standards of ethics. Everyone despises hypocrisy, and if our kids decide that we say one thing and do another their judgment can be harsh.